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While profitability is essential, it doesn’t guarantee long-term success. Some companies that rest on their margins will lose ground as competition intensifies - as Jeff Bezos said, "Your margin is my opportunity".
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here is one profitable company that leverages its financial strength to beat the competition and two best left off your watchlist.
Two Stocks to Sell:
Quanex (NX)
Trailing 12-Month GAAP Operating Margin: 2.8%
Starting in the seamless tube industry, Quanex (NYSE:NX) manufactures building products like window, door, kitchen, and bath cabinet components.
Why Is NX Not Exciting?
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Efficiency has decreased over the last five years as its operating margin fell by 4.6 percentage points
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Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 6.9% annually
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Free cash flow margin shrank by 6.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Quanex’s stock price of $17.24 implies a valuation ratio of 6.7x forward P/E. To fully understand why you should be careful with NX, check out our full research report (it’s free).
Graco (GGG)
Trailing 12-Month GAAP Operating Margin: 27%
Founded in 1926, Graco (NYSE:GGG) is an industrial company specializing in the development and manufacturing of fluid-handling systems and products.
Why Does GGG Worry Us?
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Sales were flat over the last two years, indicating it’s failed to expand this cycle
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Earnings per share were flat over the last two years and fell short of the peer group average
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Waning returns on capital imply its previous profit engines are losing steam
Graco is trading at $83.27 per share, or 27.5x forward P/E. Check out our free in-depth research report to learn more about why GGG doesn’t pass our bar.
One Stock to Watch:
Intuit (INTU)
Trailing 12-Month GAAP Operating Margin: 22.2%
Created in 1983 when founder Scott Cook watched his wife struggle to reconcile the family's checkbook, Intuit provides tax and accounting software for small and medium-sized businesses.
Why Could INTU Be a Winner?
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Billings growth has averaged 15% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
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Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
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Robust free cash flow margin of 32.8% gives it many options for capital deployment